18279504 Fertilizer Sector of Pakistan 130310063507 Phpapp02

7/27/2019 18279504 Fertilizer Sector of Pakistan 130310063507 Phpapp02

1/23

FERTILIZER S ECTOR OF PAKISTAN Presented By: Fakhar Ud Din

Presented To: Prof. Dr. Qais Aslam


2/23


3/23

OVERVIEW

An Economy Deriving 21.8% of Its Output from Agriculture:

As of FY09, agriculture contributed 21.8% to the overall GDP.The demand for fertilizer is directly related to agriculturegrowth.

Urea is the most used fertilizer, followed by DAP.Major Crops Production in Year 2008-09:

(mn tons) FY08 FY09 %Change

Wheat 20.9 23.4 11.7%

Rice 5.5 6.9 24.9%

Cotton(bales) 11.6 11.8 1.1%

Sugarcane 63.9 50 (21.7%)

Source: Economic Survey


4/23

TYPES OF FERTILIZER

Eight different fertilizer products which falls into three categories.

1. Nitrogenous Category:

UreaCalcium Ammonium Nitrate (CAN)

Ammonium Sulphate (AS)2. Phosphatic Category:

Di-Ammonium Phosphate (DAP)Triple Super Phosphate (TSP)

Single Super Phosphate (SSP)Nitro Phosphate (NP)

3. Potassic Category:

Sulphate of Potash (SOP)


5/23

SPOT A NALYSIS OF FERTILIZER SECTOR

No. of Fertilizer Manufacturers 8

Capacity Utilization 110%

Industry capacity (urea mnt) 4.3

Industry capacity (DAP mnt) 0.44

Production (1HCY09 mnt) 3.06

Imports (1HCY09 mnt) 0.66

Source of Machinery Italy, England, Denmark, U.S.A,Japan.

Plants in Pipeline 2


6/23

BUDGET OVERVIEW REGARDING FERTILIZER Budgeted Measures

Subsidy of PKR 10bn on urea imports

Subsidy eliminated on phosphate and potash fertilizer imports

Continuation of high support crop prices

Feed gas is priced at PKR 94.7/mmbtu a 72% discount to fuel gasprice of PKR 339.4/mmbtu


7/23

UREA M ANUFACTURING PROCESS :

Ammonia Plant Ammonia

Urea PlantProduct

Handling &Shipment

Urea

Water

Power Plant & Utilities

50 Kg UreaBag

Carbon Dioxide

POWER

STE

AM

POWE

R

STE

A

M

N ATUR

ALG

AS


8/23

DAP M ANUFACTURING PROCESS

Ammonia Plant Ammonia

DAP PlantProduct

Handling &Shipment

DAP

Water

Power Plant & Utilities

50 Kg DAPBag

POWER

STE

AM

POWE

R

STE

A

M

N ATUR

ALG

AS

Phosphoric AcidSulphuric Acid

SandFurnace Oil


9/23

EXCESS DEMAND S ITUATION-SELLER IS THE KING

Capacity 5.8 million tonsDemand 6.9 million tons

The heavy demand is driven by: Attractive wheat support price of Rs.950 per 40 kg.Decent Cotton & robust Wheat crops.Reduction in Urea & DAP prices.


10/23

DEMAND DRIVERS

Low Crop Yields

Growing Population

Fertilizer Prices

Commodity Support Prices

Water Availability

According to NationMaster

Pakistan ranks 46th in the world in terms of fertilizers consumption,

where its fertilizer usage per hectare is 115 kgs.


11/23


12/23

INTERNATIONAL VS LOCAL DAP P RICES

0

500

1000

1500

2000

2500

3000

3500

DAPUS Gulf

Local Rs/bag

Source: NFDC


13/23

BUSINESS MODEL OF INDUSTRY

There are two types of business model operational in fertilizersector .

1. Manufacturing Model:

Two types of fertilizers are produced in Pakistan which are

Urea & DAP.2. Distribution Model:

Import fertilizer and sell them in association with the localdealer network.


14/23

INDUSTRY STRUCTURE :

Eight fertilizer companies.

The fertilizer sector in Pakistan is overseen by the Ministry of Food,Agriculture & LiveStock.

Oligopolistic Structure

The four largest firm are price setters. However, subsidy on feedstockto firms prevent these firms from exploiting their marketing power.

Share of listed companies in Urea and DAP.

42.03%9.56%

15.39%

Urea Market Share-1HCY09

FFC

FFBL

ECPL

26.46%

58.50%

15.03%

DAP Market Share-1HCY09

Others

FFBL

ECPL

Source: NFDC


15/23

FERTILIZER POLICY 2001

The last fertilizer policy was announced in 2001.

The Policy had been divided into two segments: 1. Providing feedstock gas to companies at subsidized rates.2. Providing feedstock gas to new plants at a fixed price of US

$0.77 per mmbtu for a period of 10 years.

Under the second segment , Engro & Fatima Fertilizer willbe rewarded with feedstock gas at US $0.77 per mmbtu for a period of 10 years from the date of commission .


16/23

INDUSTRY PORTER S MODEL

1. Barriers to Entry: HighLimited supply of major raw material (Natural Gas)Capital Intensive nature of the industry

2. Bargaining Power of Suppliers: HighSuppliers have the bargaining power as there are 4 majorplayers in the sector and the price is being determined bythem.

3. Bargaining Power of Buyers: Low

Heavy Demand4. Threat of Substitutes: Very Low5. Competition: Low


17/23

SWOT A NALYSIS

1. STRENGTHS:Capital Intensive nature of the sector.The players operating in this sector are financially strongAll the fertilizer plants are producing at more than 100 per cent

installed capacity of utilizationGoP supports in the form of subsidyCheap laborHeavy demand

Well established distribution sectorAn agro based economy


18/23

SWOT A NALYSIS

2. WEAKNESSES:Low capacity as compared to demand (demand supply gap)Due to existence of black market and heavy demand farmershad to pay above the stated price

Technological backwardness: Lack of local resources


19/23

SWOT A NALYSIS

3. OPPORTUNITIES:As the demand is high compared to supply, fertilizer sector hasan opportunity to expand capacity to fulfill the local demand.Export

Introduction of BT crops


20/23

SWOT A NALYSIS

4. THREATS:Scarce water resourcesLoad-shedding of gasHike in fuel prices

TaxesRemoval of subsidyRising global prices of fertilizer productsGovernment intervenes to stabilize the prices


21/23

PROJECTED EXCESS SUPPLY OF FERTILIZER IN WORLD

The export potential in the fertilizer sector of Pakistan remainslimited


22/23

ASIA FERTILIZER FORECAST 2007/2008-2011/2012

2007/2008 2008/2009 2009/2010(000 tons) 2010/2011 2011/2012

N supply 72,123 76,317 79,933 85,491 89,850Total demand 75,255 76,111 77,961 80,413 82,476

Surplus

(Deficit)

(2,132) 206 1,972 5,078 7,374

P Supply 13,882 14,744 15,484 16,185 17,964

Total demand 19,209 19,890 20,560 21,168 21,784

Surplus(Deficit)

(5,327) (5,146) (5,076) (4,983) (3,820)

K Supply 5,428 5,524 6,226 6,450 6,530Total Demand 14,485 15,138 15,794 16,464 17,073

Surplus(Deficit)

(9,057) (9,614) (9,568) (10,014) (10,543)

Source: IFA


23/23

RECOMMENDATIONS

Strict quality control and monitoring should be there to preventimport of sub-standard products and to curb adulteration and othermalpractices prevailing in this sector.

The problem of logistics should be looked into. Transportationthrough railway (being cheaper) especially during peak seasonsshould be made available.

There is a need to educate the farmers on balanced fertilizer use soas to neutralize the adverse impacts of constant use of nitrogenousfertilizers.

Documents

18279504 Fertilizer Sector of Pakistan 130310063507 Phpapp02